Do you get a bit too caught up on profitability and margin?
At Quietroom, they’ve decided to change tack completely, and focus on revenue instead.
“If you’re overly focused on profit, the easiest way to increase margin is to cut costs – but you can actually restrict your growth ambitions if you’re just eking profit out of everything you can,” says board director Chloe Taylor.
“With chasing revenue, while it might slim your margins, it’s much more likely to encourage an expansive growth mindset.”
A big factor in their decision to focus on revenue is the fact Quietroom is now an employee-owned trust (EOT).
“We’ve still got to pay off the EOT loan, but once that’s repaid, where can the profit go? There’s no one to give dividends to. We could give it back in bonuses, we could reinvest in the business, we could give everyone a pay rise – and they’re all nice things, but they don’t have the same impact on decision-making.”
Moving away from a focus on profit, and instead looking at revenue, is also a big change to get your head around.
“It takes a lot of mindset shifting,” explains Chloe. “You can talk about growth but get caught up on margin. As a result, you stop saying yes to things because the margin’s a bit lower, or you’re not making as much profit. You just stay the same, and everything is about fine tuning rather than investing.”
“I’d rather spend money and grow the business than have a load of money sitting in our bank account.”
While this has changed the agency’s mindset and created a more positive, holistic approach, this is still a work in progress. However, it hasn’t affected their profitability as much as they thought.
“We’ve made slightly less profit, but our margin has remained the same on the work we do. That’s interesting because we’ve always been quite discerning about not doing work that doesn’t hit the right mark,” explains Chloe.
“But a result of everyone doing loads of stuff because you’re investing in growth, there is a lag between your investment and your return – it’s definitely slower than simply cutting costs and seeing your profit go shooting up.”
“You need a long enough timeframe to see the realisation of your investment, and in an agency that’s traditionally been focused on cost, profitability, margin – that’s quite scary. But it’s all about having confidence, trusting the process, and managing our priorities.”
Is this something you’ve considered? Perhaps moving away from a focus on profitability could change how you view the work you do, how you do it, and even your future aims for your agency.
Chloe will be on hand to discuss the revenue-focused journey Quietroom has been on so far this year, and what she sees next on the horizon.